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India needs to adopt budget rules that have proved successful in other countries if it is to put its public finances on a sustainable footing, the International Monetary Fund says.

IMF feels that more forceful institutional action needed to get to grips with a Indian government deficit.

In an IMF Working Paper, Fund says that India must learn lessons from countries as diverse as New Zealand and Chile to get to grips with a general government deficit that exceeds 10 per cent of national output.

India has had no problem funding its deficit, largely because banks are ready buyers of government debt. Under the Fiscal Responsibility and Budget Management Law (FBRM), the Indian government plans to eliminate its revenue deficit -- which excludes investment spending -- by March 2009.

But IMF feel that the law may prove far from adequate to staunch the flow of red ink. Not only do state governments account for 40 per cent of the combined deficit, but federal belt-tightening may put pressure on states to compensate by spending more.

The authors of IMF working paper, Hausmann and Purfield make a series of suggestions to improve India's fiscal federalism...

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